Since the beginning of the year, the price of Brent crude oil has risen nearly 17% to $89 a barrel. This came as it defied the forecasts of the world’s biggest firms, which said prices would fall. At the next OPEC+ meeting on February 2, members of the coalition will have to decide whether they want to cool the market and reduce prices, or follow the previously agreed plan .
Oil prices are rising not because supply is not equal to demand, but because the market impact of the Omicron strain was not as strong as expected at the end of last year. The deterioration of relations between the Russian Federation and the United States has led to fears of a crisis in the supply of Russian crude oil, some of which is already short on the market. The situation in the Middle East also contributed to the growth of prices, namely the awakening of the Yemeni rebels, including their attacks on oil fields in the United Arab Emirates.
In addition, the market was affected by the news that OPEC + countries do not have time to increase production at the expected rate. In December 2021, instead of the forecast of 400 thousand barrels per day, the growth of the plant is only 260 thousand barrels, and in January, according to Reuters, only 210 thousand. Many attribute the lack of investment in new oil projects in recent years to the push of the green movement.
Dmitry Skryabin, a financial manager at Alfa Capital, said that the parameters of the operation will remain the same in March (an increase of 400,000 barrels per day). The high price of oil is beneficial for exporting countries, and the question of losing market share is not on the table. And judging by the latest information, many OPEC countries have not chosen their production quotas, and in these circumstances it is not necessary to increase them, the expert said.
Ole Hansen, director of trading strategy at Saxo Bank, agrees. According to him, the market has more interest in the amount of participants in the contract that will increase the activities in March, rather than the stated goals of the partnership.
This means that in February oil prices will remain at their current highs and may even rise. For Russia, this situation has two consequences. On the one hand, the National Wealth Fund (NWF) receives additional income from oil exports and subsidies, from the taxes of oil companies. On the other hand, downward pressure will increase on gasoline and diesel prices in Russia, because growth will grow first in retail and then in retail. The cost of jet fuel will also increase, which may increase airfares. Prices in the domestic fuel market will increase if the price of oil rises above $100 per barrel.
Oil reserves in major countries are near multi-year lows, Skryabin said. The situation arises that the current lack of oil (3 million barrels per day) will not only cover the increase in OPEC + activity, but will increase due to the high demand, the expert believes.
According to Hansen, oil prices will exceed $100 only in the second half of 2022. But the drop in oil prices in the near future is likely to happen a lot. First, the lifting of US sanctions on Iran’s oil and gas purchases. Second, the growth of shale oil production in the United States. Third, the decline in gas prices will reduce the demand for oil as a substitute. Fourth, there is the new and dangerous nature of the coronavirus. But it is impossible to exclude the rapid growth of prices per fund in February, if none of these things work, explained the expert.
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